Reserves opened to fight corn prices

10:39, June 12, 2010      

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Provisional corn reserves went on the market Friday in the government's most recent effort to curb skyrocketing prices that have been buoyed by policy missteps and a weak harvest last year.

Corn output is expected to reach 170 million tons this year, 6 million tons more than last year if there is no drought in major growing regions, said Sun Yu, a corn analyst with Galaxy Futures. But analysts said whether the price will drop depends more on the pig farming industry, the largest consumer of corn.

Profitability in the pig farming sector could lead to price increases, said Weng Ming, an agriculture expert with the ChineseAcademy of Social Sciences.

If the industry makes money, they'll require more corn for feed. That could push the price up again, he said.

Last year, the corn output was 7-8 million tons short due to the drought of the Northeast regions, Weng said.

Consequently, the corn price rose 25 percent from about 1.46 yuan (21 cents) per kilogram in early 2009 to current 1.82 yuan (27 cents) per kilo.

The provisional corn inventories of the China Grain Reserves Corporation (Sinograin) have been depleted to only 3 to 4 million tons, the National Business Daily reported Friday.

Sinograin functions to stabilize the market by releasing stored grains in short supply and buying up surpluses in times of oversupply. Total reserves of Sinograin corn are composed of provisional and central reserves. The amount of the central reserves is held as a State secret.

"The provisional reserves might be even lower than estimates, as Sinograin only placed 1 million tons on the market Friday," Sun of Galaxy Futures said.

In addition to decreased output in 2009, government's policy issued in November to subsidize southern buyers to purchase northeast corn also pushed up the market prices starting earlier this year.

The policy was aimed at increasing corn farmers' revenues by attracting more southern buyers to purchase corn domestically rather than importing from abroad, as the imported corn was 200 to 300 yuan ($29.28 to $43.92 ) cheaper than domestic corn last year.

Source: Global Times


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